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Friday, June 3, 2016

Dormant Stocks Tading Accounts

Sebi mandates brokers to frame their own policy for the treatment of accounts that don't witness transactions for a long period of time. Many investors are known to open demat accounts to convert old paper securities, or to invest in an IPO and not transact on them. Brokers may classify such accounts as dormat, and subject them to a new set of rules for operation.

Definition

Brokers may define a dormant account as one that hasn't had any buy or sell transaction for a fixed period, typically ranging from 11 months to five years, depending on the broker's policy. Dividend receipts or corporate actions in the account do not classify as a transaction.

Activity

Dormat accounts, in which securities are being held, can be misused by fraudulent people. Any debit (or sale) activity in such accounts will be treated by brokers as sensitive. They may have systems that ask for the authorisation of such transactions, or require re-activation of the account before a sale transaction can be carried out.

Reactivation

Reactivating a dormat trading account requires the client to apply in a specified format and complete KYC requirements. Some broking firms may also charge a nominal reactivation fee or maintenance fees. However, this is fairly uncommon, given that a re-activated account will generate a commission from transactions.

Maintenance

Brokers may ask clients to pay an annual maintenance fee to keep their account active. They may also notify clients on a periodic basis about the lack of transactions and the conversion of the account into a dormant account. If the agreement with the client allows it, brokers may also settle a dormant account for want of activity.

 

Reactivation of dormant trading accounts may take a couple of days.Familiarise yourself with your broker's policy to avoid disappointment when trying to transact after a long gap.

Online broking accounts that are linked to a bank account may have the facility to request reactivation or submit forms electronically to reactive an account.

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